Bush Should Worry About Greenspan, Not Saddam

by Alexander Cockburn

It was Alan Greenspan, chairman of the Federal Reserve and the man whose wrong-way calls on interest rates at the start of the Nineties ushered in the recession that allowed Bill Clinton to capture the White House on a platform of economic populism.

Guess what? It's happening again! Bush Jr, will learn that you can indeed step in the same river twice, so long as Greenspan is controlling the sluices. Because Greenspan did nothing in the late Nineties to curb the greatest corporate crime spree in the history of capitalism, the Democrats got out of Dodge seconds before the roof finally fell in.

As one economist recently remarked, in terms of economic reality, the late Nineties never happened. Everything was done with smoke, mirrors and crooked accountancy, condoned by Greenspan.

And now the economic horizon is darker by far than you'd ever guess from the pundits. Sure, we've had the implosion of the telecoms, the humiliation of the mightiest corporate names of the Bubble years, World.Com, Enron, Qwest, but the problems run far deeper than the chasm between "pro forma" balance sheets issued to lure investors and Generally Accepted Accounting Principles, used for later filings with the SEC.

(Admittedly, this chasm was pretty impressive. For the first three quarters of 2001 the Nasdaq 100 companies reported, on a "pro forma" basis, profits of $19 billion. For the very same period these same companies reported to the SEC, on a GAAP basis, losses of $82 billion. Call it the $101 billion difference. In the same time frame, Microsoft, Intel, Cisco Systems, Oracle and Dell together exaggerated their profits by a factor of three.

But the telecom/high-tech bust lurches on against the backdrop of a U.S. economy already bloated with over-capacity and over-production in international manufacturing. Between their 1997 peak and the first quarter of 2002, manufacturing profits fell by no less than 65 percent. According to revised government stats, the picture in the non-manufacturing sector is a good deal darker than had been supposed.

Here's the bottom line: The official rate of profit on capital stock in the non-financial corporate sector as a whole is now (first quarter 2002) at its lowest level of the postwar period (except for 1980 and 1982). Remember, as Robert Brenner has been pointing out (see his invaluable "The Boom and the Bubble," published by Verso) between 1997 and 2000, at the very same time as the supposed U.S. economic miracle was reaching its point of maximum distension, corporate profits in absolute terms and the rate of return on capital stock (plant, equipment and software) in the non-financial corporate economy were falling sharply -- as recently revised figures show, by 15-20 percent in both cases.

We've now seen seven straight quarters of declining investment on plants and equipment, and a sharp drop of the growth of consumer spending over the past four or five months. Suppose there's another drop in equity prices, reflecting dawning awareness that the performance of many of America's mightiest corporate names was based entirely on fraudulent numbers and such accounting chicanery as categorizing losses as capital expenditures that could be amortized.

If we suppose that, we could be looking at a much fiercer recession.

Of course both parties connived in dismantling the regulatory structure installed in the Roosevelt era. It was the Democrats who put through telecommunications "reform" in 1996, which pumped gas into the expanding bubble, which Alan Greenspan and the Fed, as well as the SEC, did nothing to puncture.

To the contrary, they carefully ignored the mounting corporate frauds that we now know were helping to sustain that bubble. They condoned the stock market frenzy that was the only force sustaining the expansion of the real economy and that was making billions for their cronies, the bankers and the CEOs, who then skipped clear of the rubble with their fraudulently acquired billions.

You want to know the scale of looting countenanced by the nation's top financial supervisor? Between 1995 and 1999, the value of stock options granted to U.S. executives shot up from $26.5 billion to $110 billion, a figure equal to one fifth of non-financial corporate profits in 1999. In 1992, corporate CEOs held 2 percent of all equity outstanding of U.S. corporations; today they own 12 percent.

The CEO pirates will mostly enjoy their loot, untroubled by retribution other than the ailments of the rich, strokes and cancers. The Bush administration will pay the penalty in 2004 for overseeing the first serious downturn since the early Nineties. If W really wanted to settle accounts with the nemesis of his dad and himself, he'd spare Baghdad and bomb the Fed.